Types of Charitable Remainder Unitrust

Withdrawals work differently depending on whether you choose a Standard CRUT, a NIMCRUT, or a Flip CRUT. So, what are their key differences?

1. Standard CRUT
There are two types of Standard CRUTs. The first is Unitrust where you’ll receive a set percentage of the trust’s assets each year. Because this is a unitrust, you’ll know the rate at the start of the trust, but each years distributions will depend on the value of your trusts assets each year.
The second type of standard CRUT, is an Annuity Trust. It works the same way as Unitrust, except that you determine a fixed amount of Income you wish to receive each year, versus a percentage. The value of the Annuuty Trust does not affect your annual payout.
Standard CRUTs can be a good fit for customers willing to give up some returns in exchange for relatively predictable, consistent payouts.

2. NIMCRUT
With a NIMCRUT, you are owed the same percentage of trust assets yearly as you would from Standard CRUT and you have some ability to defer those distributions to future years. These trusts distribute the lower of the trusts realized income and the percentage of trust assets it owes you. If the realized income is lower than the distribution percentage the trust owes you, any underpayments are rolled over to future years, giving you control over your annual distributions by controlling how much income your trust realizes each.
Although NIMCRUTs carry the highest expected returns, they can only distribute realized gains, so down markets can be a problem. For that reason, a NIMCRUT can be a good fit for those who are set on maximizing total returns, setup their CRUT for a long period and can weather down years.

3. Flip CRUTs
Flip CRUTs ‘flip’ from a NIMCRUT structure to a Standard CRUT structure after a predetermined event, such as the sale of a non-marketable asset or a certain number of years.
They are commonly used if you want consistent distributions but have non-liquid assets that won’t be liquid for a while. With a Standard CRUT the trust may be forced to liquidate or distribute non-liquid assets due to its forced distributions. Flip CRUTs also work for those who want to defer distributions for some time and then switch to the consistent, predictable distributions of a Standard Charitable Remainder Unitrust — for example, if you are planning for a period of growth and then will need retirement income.

How Long Can You Set Up a CRUT For?
A Charitable Remainder Unitrust can last for a fixed period (between 1 and 20 years), for one life, two lives, or for even longer – say, your lifetime and your partner’s, or your lifetime plus a set period of years after that for your family to draw other distributions.

Term trusts may be easier for some people to commit to due to their shorter and predictable length compared to lifetime trusts that last a lifetime. While lifetime trusts have several advantages:
• Higher return on investment. CRUTs allow you to defer your taxes and earn returns on the savings. Generally the longer your trust lasts the more significant the gains from a CRUT are.
• Flexibility in investments: With a term CRUT, your investment time horizon is limited: Whatever you invest in has to pay off within the length of the trust. With a lifetime trust, you can invest in illiquid assets with long time horizons – such as alternative asset classes that could be illiquid for a decade or longer.